Tuesday November 18 Housing and Economic stories

TOP STORIES:

Cash Source for Seniors Dries Up - (www.marketwatch.com) Older adults turning to the "life settlement" industry to help them through tough times are finding that this popular source of quick cash is getting harder to tap. Life settlements, in which people sell their life-insurance policies to investors in exchange for a lump-sum payment, were a $12.2 billion business in 2007, according to Conning Research & Consulting Inc. in Hartford, Conn. Despite regulators' concerns about the industry's high fees, opaque nature and aggressive sales practices, that figure is more than triple the amount of just three years earlier. The growth, in part, reflects the fact that retirements have been stretching longer -- and nest eggs shrinking faster -- than many retirees ever imagined. More recently, however, fallout from the credit crisis, coupled with a critical change in September in how sales of life-insurance policies are priced, means that several buyers of such policies -- who make their money by pocketing the death benefit when the initial policyholder dies -- have either pulled out of the market or scaled back their purchases. The buyers that remain are, in many cases, offering lower prices. And that is cutting off a source of cash for the growing numbers of older adults who rely on such sales to shore up shaky finances. "Several seniors we've transacted with lately have suffered tremendous losses in their retirement savings and seen substantial equity value in their homes wiped away," says Mark Goode, chief executive of the Peninsula Group in Washington, which buys life-insurance policies for institutional investors. "Many sellers simply need the cash. Their question today is: 'How quickly can we close?'" The increasingly common answer: not very soon, if at all. Richard Hess of Lancaster, Pa., recently approached Milestone Managers & Providers in Manheim, Pa., about selling his $100,000 policy to raise "a little extra money." The 66-year-old was told he had missed his window of opportunity. "Six months ago we might have had a buyer," says Kristian Armstrong, chief executive of Milestone, which specializes in buying policies with death benefits under $1 million. "But as it stands now, 66-year-olds are typically not going to get anything."

The Golden Years, Tarnished - (www.nytimes.com) Since the stock market began to fall, friends have been coming to Barbara Goldsmith to talk about their depression, loss of appetite, insomnia and cravings for hot fudge sundaes. “People are grieving,” said Ms. Goldsmith, a semiretired psychotherapist who counsels fellow residents of the Gleneagles Country Club, a gated community here. “There was a death. Their money died.” In communities like Gleneagles and in the homes of retirees across the country, these are days of fear and uncertainty. In theory, retired people are not supposed to invest much in the stock market; in reality, many millions of them do. With the economy in free fall and stocks down about 40 percent this year, legions of middle- and upper-middle-class people are suddenly worried about having enough to carry them through. To be sure, no bread lines are forming at places like Gleneagles. The community remains placid and, on the surface at least, highly prosperous. Retirees play golf, tennis and cards amid peach-colored condominium villas, ornate fountains, and manicured palm trees and violet bougainvillea. But sustaining that comfortable life for another two or three decades, as many retirees hope to do, requires money. People with investments that were worth $1 million or $2 million a few months ago are suddenly canceling cruises, clipping supermarket coupons, eating at home rather than at restaurants and cutting back on contributions to their grandchildren’s college educations. Like retired people everywhere, residents here knowingly juggled what they saw as competing risks. They all heard the standard advice to move their assets out of stocks and into supersafe investments as they neared retirement. But, with interest rates so low, the returns on safe investments like government bonds were meager, and many of them saw a risk in not keeping some money in stocks. To finance a long retirement, they figured they needed the gains characteristic of the stock market. Keeping money in stocks left them exposed, of course, to the risk of a once-in-a-lifetime market meltdown. Now, that day is at hand. “Every television monitor in the card room and locker room is on CNBC, so we can get aggravated all day,” said Jerry Rivkin, 75, a retired appliance store owner. “We’re playing for nickels and dimes while we watch ourselves losing tens of thousands.”

Court-ordered closure halts slide on Kuwait Stock Exchange - (www.latimes.com) Individual investors take legal action to protect their portfolios, but government and market officials call the move foolish. Traders at the Kuwait Stock Exchange celebrate an unscheduled day off after individual investors tired of continuing losses won a court order closing the market less than an hour into Thursday's session. The move was strongly criticized in other quarters, however. Investors in Kuwait found a solution Thursday to tumbling share prices: Get a court to shut down the stock market. A judge in the oil-rich Persian Gulf kingdom, acting on a lawsuit brought by individual investors, ordered the country's stock market closed to protect small investors from further declines in their portfolios. Stock markets in the Middle East have tumbled along with others around the globe as oil prices have plunged and the financial contagion sparked by the U.S. mortgage crisis has continued to spread worldwide. The main Kuwaiti stock index is down 44% since June. On Thursday, bankers from around the Arab world convened in Lebanon to discuss the crisis and the Kuwaiti government announced the creation of a multibillion-dollar fund to bail out ailing financial institutions. Although traders at the Kuwait Stock Exchange cheered and howled with delight after learning that the market would be closed after less than an hour of trading, the court order was strongly criticized in other quarters. "It is like fighting mosquitoes with a machine gun," said Haitham Abo Shady, managing director of Dubai Financial Brokerage, which is based in the United Arab Emirates. "This will only increase the panic among investors and is going against all the rules of free trade."

Chrysler in Crisis, Needs U.S. Aid, Nardelli Says - (www.bloomberg.com) Chrysler LLC, the company with the biggest U.S. sales slide among major automakers, is in crisis and needs federal aid, Chief Executive Officer Robert Nardelli said. ``It would be very difficult to make it through this unprecedented downturn'' without help, he said today at Ernst & Young's Strategic Growth conference in Palm Desert, California. The automaker ``cannot assume we are going to get financial assistance'' and may have to close two more assembly plants, Nardelli said. Chrysler, General Motors Corp. and Ford Motor Co. have asked for $25 billion in U.S. aid to help weather the deepest auto-sales decline in 17 years. Sales this year through October tumbled 26 percent for Auburn Hill, Michigan-based Chrysler, compared with 15 percent for the industry. House Speaker Nancy Pelosi is urging Congress to pass an industry bailout to prevent a collapse of GM, Ford and Chrysler. House Financial Services Committee Chairman Barney Frank proposed taking $25 billion for loans to the companies from the $700 billion in financial-rescue funding. How much Chrysler might get in federal aid is ``yet to be determined,'' said Nardelli, 60.

Ecuador Bonds Sink on Concern Government to Miss Debt Payment - (www.bloomberg.com) Ecuador's bonds plunged amid speculation the government will miss a $30 million interest payment in two days on its benchmark dollar bonds due in 2012. The yield on the 12 percent securities soared 25 percentage points to 69.28 percent at 5:36 p.m. in New York, according to JPMorgan Chase & Co. The price on the $510 million bond sank 17 cents to 25 cents on the dollar. The South American country's finances have been squeezed by a tumble in oil, its biggest export, adding to concern that President Rafael Correa will follow through with default threats he first made during the 2006 campaign. ``There's fear that they will not pay the coupon,'' said Claudia Calich, who manages $1 billion in emerging-market debt for Invesco Inc. in New York.

'Hedge funds will be decimated' - (www.fortune.com) A Congressional panel grilled five of the world's richest and most powerful hedge fund managers Thursday as lawmakers sought to understand how much blame they could assign the little-understood hedge fund industry for the global economic collapse. Noting that we are in the worst financial crisis since the 1930s, George Soros told the committee: "The salient feature of the current financial crisis is that it was not caused by some external shock... The crisis was generated by the financial system itself." Soros' prepared testimony read very much like an advertisement for his latest book, "The New Paradigm for Financial Markets;" but on the point of how much blame hedge funds should shoulder, Soros was less explicit. He noted that while funds may have helped inflate the bubble, "the bubble has now burst and hedge funds will be decimated."

S&P Cuts $20 Billion in CDOs That Bet on Lehman, WaMu - (www.bloomberg.com) Standard & Poor's cut its ratings on more than $20 billion of U.S. collateralized debt obligations that made bets on companies including now-bankrupt Lehman Brothers Holdings Inc. and Washington Mutual Inc. S&P lowered its ratings on 565 pieces of the CDOs, which sold credit-default swaps protecting against defaults on groups of companies that included Lehman and WaMu, as well as Fannie Mae and Freddie Mac, the mortgage finance companies that were seized by the government in September, according to a statement today from the ratings company. Investors have been anticipating downgrades, with some taking losses of more than 90 percent because they bet heavily on financial companies that have either failed or have shouldered the biggest losses from the worst financial crisis since the Great Depression. S&P said it may make further cuts because it hasn't yet taken into account the failure of three Icelandic banks, which were seized by the government's financial regulator. The financial company defaults ``exceeded expectations and could yet prove to be part of a new peak default pattern,'' Fitch analysts Jeremy Carter, Philip McDuell and Jan Bockelmann in London wrote in the report today.

Thirty Year Bond Auction: Not a Good Result for Hank Paulson – (www.acrossthecurve.com) - The Treasury auctioned $10 billion Long Bonds and the result was a genuine debacle for the taxpayers. The issue (in the jargon of trading rooms) tailed 10 basis points. A tail is the number of basis points from where the issue was trading in the market moments prior to the auction to the level at which it actually cleared. The auction average was about 10 basis points cheaper than market levels.That is mucho dinero. One basis point on a Long Bond equals 5 ½ /32s. The nuns taught me quite well in grammar school and that means that 10 basis points equal 55/32s. Because I do not wish to work to hard I am going to proclaim the result 56/32s which is 1 ¾ points and an easier number to work with it. That means that for every million bonds auctioned the Treasury paid an extra $17,500. Ten billion bonds is ten thousand million which when multiplied by $17,500 means the result cost the taxpayers $175,000,000. As an aside the Treasury auction process can force this type of result. The Treasury holds a Dutch auction in which every one who bids is awarded bonds at the highest yield. The issue was trading at about 4.20 percent. Let me make the point by using some hyperbole. Suppose that at the yield of 4.20 percent the Treasury had $9billion in bids for the $10billion issue. Now suppose there are no bids between 4.20percent and 4.30 percent. Then miraculously there are $1billion of bids at the 4.31 level. In that unusual case all of those who bid 4.20 are awarded bonds at the 4.31 percent level. Every one owns the issue at the cheapest price.So in an environment of risk aversion it is possible that this type of result might become common place.



OTHER STORIES:

Bank executives say their using federal money for loans, reducing mortgages - (www.ml-implode.com) - "Some of the nation's largest banks sharing in the $700 billion government bailout of the financial industry tried to assure law...


U.S. Treasuries Fall After Investors Shun 30-Year Bond Auction - (www.bloomberg.com)
U.S. Stocks Surge, Led by Shares of Energy, Real-Estate Firms - (www.bloomberg.com)

CalPERS' housing portfolio loses 35% in a year - (www.latimes.com)
Zimbabwe hyperinflation 'will set world record within six weeks' - (www.telegraph.co.uk)
China Industrial-Output Growth Is Slowest in 7 Years - (www.bloomberg.com)
Heady Days Gone, City of London Struggles - (www.nytimes.com)

Fiscal crisis gives Argentines familiar sinking feeling - (www.iht.com)
BT to Cut 10,000 Jobs; Second-Quarter Profit Falls - (www.bloomberg.com)
October budget deficit hits record of $237.2B - (biz.yahoo.com/ap)
U.S. Jobless Claims Reach Seven-Year High of 516,000 - (www.bloomberg.com)
OECD says developed world in recession, set to contract by 0.3 percent next year - (www.chicagotribune.com)
Foreclosures up 25 percent: RealtyTrac - (www.reuters.com)
U.S. Shifts Focus in Credit Bailout to the Consumer - (www.nytimes.com)

Buying Binge Slams to Halt - (www.nytimes.com)
JPMorgan CEO Jamie Dimon says economic recession could be worse than markets crisis - (www.chicagotribune.com)
Treasury Redefines Its Rescue Program - (www.washingtonpost.com)
Stick With the Job You Know, More Employees Are Saying - (online.wsj.com)
Mortgage applications up 11.9% last week: MBA - Market Watch from Dow Jones
Paulson Credibility Takes Another Hit With Rescue-Plan Reversal - (www.bloomberg.com)
Wal-Mart Lowers Full-Year Profit Forecast on Dollar's Gains - (www.bloomberg.com)

Consumers stop shopping, creating pain for retailers, economy - (www.chicagotribune.com)
Led by Intel, chip makers cut outlook - (www.iht.com)
Life Insurers Facing Cuts in Ratings - (www.nytimes.com)
Navistar warns about losses related to Ford - (www.chicagotribune.com)
Owner of KFC and Taco Bell to cut hundreds of jobs - (www.latimes.com)
Credit-Crunch Villains Pass the Buck, Party On: Mark Gilbert - (www.bloomberg.com)